DP11827 Capital Flows and the International Credit Channel

Author(s): Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, José Luis Peydró, Mehmet Fatih Ulu
Publication Date: February 2017
Keyword(s): Bank Heterogeneity, Bank-Lending Channel, Capital Flows
JEL(s): E0, F0, F1
Programme Areas: Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11827

We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.